What's the difference between temporary buydowns and discount points?

What's the difference between temporary buydowns and discount points?

You're looking at the difference between temporary buydowns and discount points—two ways to reduce mortgage payments that work differently. Both involve paying money upfront to lower your interest rate, but the timing and duration vary.

Temporary buydowns reduce your interest rate for a limited time, typically one to three years. The most common version is a 2-1 buydown, where your rate drops 2% in year one, 1% in year two, then returns to the original rate for the remaining loan term. Someone else can pay for this—often the seller or builder—making it popular in new construction or competitive markets.

Discount points permanently reduce your interest rate for the entire loan term. Each point typically costs 1% of your loan amount and lowers your rate by about 0.25%. You pay for points at closing, and the rate reduction applies to every payment you make.

Check your Loan Estimate to see which option works better for your situation. Compare the upfront cost against your monthly savings over time. If you plan to stay in the home long-term, permanent points might make sense. If you expect to move or refinance within a few years, a temporary buydown could provide more immediate relief.